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Opinion: Make the cost of CO2 emissions a permanent feature of annual reports

Knowing the cost will encourage businesses and consumers to make more sustainable choices
06 April 2018
Prof. Dick de Waard
Prof. Dick de Waard

Most companies have little in the way of a greenhouse gas policy and do little to register their emissions. These are the findings of recent research by the Royal Netherlands Institute of Chartered Accountants (NBA) and the University of Groningen. This is surprising because we will only know if we are achieving the international climate goals of the Paris Agreement if businesses measure and publish their climate performance.

Authors: Paul Slegers (NBA) and Prof. Dick de Waard (UG)

Concern about the climate is reaching a wider audience because the effects of global warming could be profound. An old principle in environmental pollution is that the polluter should pay. But this principle is not applied often enough in climate change policy. This might change if the actual cost of CO2 emissions were added to the price of our products and services. Only then would it be possible to make the polluter pay. Admittedly this would have unfortunate consequences: a substantial price hike for products and services or a dramatic decrease in business profits. But it is necessary, if we do not want to pass the buck for unacceptably high CO2 emissions on to younger generations.

Compulsory by law

To determine the exact cost, we need rigorous accounts of CO2 emissions. The emissions of all sorts of activities would then be clear, for companies themselves and the outside world. If companies do not do so voluntarily, the next step would be to make it compulsory by law to register CO2 emissions.

Organizations can only develop better policy if they have reliable figures. Only then will consumer and producer awareness develop, will businesses set and pursue specific goals, and will consumers modify their behaviour and make well-founded decisions.

The social cost

The next, more difficult, step is to determine the cost price of emissions. To give some idea: estimates of the cost of the damage caused by CO2 emissions range from €15 to €350 per tonne of CO2. Say a tonne of CO2 would cost €50, then the social cost of 10 million tonnes of CO2 emissions – the emissions of a few big businesses in the Netherlands – would be €500 million.

This cost price must be calculated for everything as a matter of course. The cost would then, whether or not by law, be passed on to the client, so that the polluter really would pay. This brings up tricky questions such as: what would businesses do with the money that they received for passing the cost onto the client? Who would use this money to reverse the effects on the climate? As the cost of emissions is passed on, would this give people a licence to carry on polluting as long as someone pays for it? And would there be any point if we did this in the Netherlands or Europe while others continued to pollute elsewhere? Good questions, but doing nothing is not an option, particularly with the clear deadlines in the Paris Agreement.

Systematically register

A first big step would therefore be for businesses to accurately and systematically register their CO2 emissions. It would then be clear how they contribute to the climate impact. This would give some idea of how many tonnes of CO2 they emit and preferably how much this is in euros. This information should be presented in such a way that it is clear what the business’s goals are, how they are realized and what their ambition is for the coming years.

Some Dutch businesses already provide such figures in their annual reports. But the system must be improved, particularly for smaller businesses. This is a matter not just for operational managers, but for financial professionals such as accountants, controllers and financial directors in particular. They have knowledge and skills in collecting and analysing data. They can provide information that will enable businesses and consumers to consider the consequences for the future in their decisions.

Paul Slegers RA, board member of NBA Accountants in business and Professor Dick de Waard RA, Professor of Financial Auditing, Director of the Executive Master of Accountancy, University of Groningen.

Last modified:20 April 2018 10.38 a.m.
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